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Here are the charts of the stocks I own. More names than I’d typically like to manage, but these are spread across various accounts – IRAs, wife IRAs, trading accounts – and I’m very close to fully invested due to how many setups have been working.

Pretty heavy on healthcare related stocks, but I’m just following price action. When the run is over it will be clear and I’ll get out. Could be this week, could be in a year, could be in 5 years. No one knows and I’m not going to try to predict it.

I’ve ignored this ticker multiple times because I figured it was farming related. Not sure why that matters or why I cared, but it happened. Turns out I’ve missed out on a big trend. But it may not be over.

$FARM supplies coffee shops. That is an easy trend for anyone to comprehend.

Now to the charts:

monthly:

weekly:

daily:

The stock is clearly in an uptrend. The weekly setup was one I really like, but it was missed. The daily still looks good to me and is playable.

Some quick notes on long term charts and their usefulness for breakouts and trades, using $BRCD as an example.

1 – long term breakouts/charts like even numbers (especially $10).

2 – long term breakouts usually don’t succeed their first time. But a retest and then real breakout can be a great setup. $9 and $10 were too easy. Retest them once, twice, $8 too, now work on $11 for the second time. If that goes I thinks its a legitimate breakout.

3 – buyable long term breakouts line up on multiple time frames.

monthly: above

weekly:

Daily:

Needs some time and patience, but if this one goes it could be a good long term buy.

Relative Strength: This is likely the best indicator for good short term setups. If the mkt is strong in the near future the stocks that held up from early sept – late oct are the ones you should be paying most attention to. ASPX shows nice RS and also has a nice volume profile in the last couple months. Very positive.

Daily Chart/Swing setup: 2 ways to look at it: buy a breakout (if it occurs) or anticipate a breakout.

If you plan to buy a breakout it appears that $28 is the level to watch for. On increased volume is ideal.

If you want to anticipate a breakout this chart seems useful:

Just an observation. Bios are extremely risky. Always do your own work.

*This is the first of a series of posts I may start to do about my mistakes (hopefully I won’t have too many to do…). These are the trades that I try to forget about and move past because they were so stupid. The trades that I don’t like to admit to myself, let alone other people. But, the trades that I really should be analyzing and learning from (opposed to analyzing the winners – that shit’s easy).

Back to the topic:

I know how to call tops. So do you. I know this because I have done it in the past and I did it recently. You probably have too. It’s okay. Kind of. You just have to identify them, learn from the, AND DON’T REPEAT. I am writing this in hopes to learn from my shitty mistake.

Here’s a quick step guide on how to call tops:

1) break your trading rules

2) do things that seem easy/obvious

3) celebrate/talk about your trading

This list could go on and on but these points apply to the specific example I’m writing about.

So here’s the recent top I called/purchased/lost real money on…

I fucking nailed it too. Chuck Schwab says I bought it at 58.71. Just missed the ATH high.

Here’s how I did it:

1) Broke a basic rule: I have a personal trading rule that I only make trades in the last 1/2 hour of the day. This is just something I do to stay consistent and to avoid chasing (see chart above). I work a couple jobs and trade on the side so I can’t rely on myself to watch charts and prices all day. Good rule for me, maybe for others too, maybe not.

This personal rule stemmed from watching stupid moves in the first 1/2 hour of the trading day. They often don’t reflect what really happens with stocks/mkts. It also stemmed from analyzing closing prices and ignoring all intraday moves (read @jboorman, @bigwavetrading for good examples of this. Good follows).

I couldn’t find the exact purchase time on Chuck’s site, but I’m pretty sure it was in the first 1/2 hour to hour of trading. Because, “holy shit, this thing is going to $100. I gotta buy it!”

Stupid. Mistake.

2) Trading is easy. Watch the stocks that are going up. Buy the breakout. Go golfing.

Not so much. If you trade stocks you know when you are focused mentally and making sound decisions. What sucks is that you usually don’t realize you are making shitty decisions until they are over with (aka: you lost money). I was not focused when I bought this stock. I wasn’t thinking “risk first – what could/will go wrong”. I was thinking “this shit’s easy. Let’s make money doing nothing. Let’s go golfing” (I was actually in an RV driving to go golfing all weekend. Hilarious).

Stupid. Mistake.

3) The stupidest and most embarrassing of all mistakes: talk about trades, think you are smart, act like you know things others don’t, tell your friends how good you are!… Stupid. Mistake.

As I just said, I was in an RV driving to northern MN to go golfing for the weekend with a bunch of friends. Good times. I was prepared to trade that Friday. Almost to a fault. (Side note: not being prepared is another good way to call tops. I was prepared though. Scanned a bunch of charts all week. Had buy lists ready). I was almost too prepared though. When everything looks good and obvious and all stocks are going up it messes with your head and makes you want to buy/break rules/talk about trades/ect. That’s how the mkt works. Nothing new. It will always take advantage of human error.

So I was in an RV, prepared to trade, knew I wouldn’t be paying attention in the last half hour of trading, drinking coffee/whiskey/baileys. Delicious. Let’s make money. Busted out the phone, put in an order, bought $MBLY. Told my buddies what I was doing. Talked about trading. Went Golfing. Sold 5 trading days later for a healthy loss.

Yes is the correct answer. So don’t make any decisions because of this post. Better yet, never make any decisions based on information from anyone but yourself. No one is smart. Nobody knows what which way the market will go. No one knows which way any stock will go. Make your own decisions. Take responsibility for mistakes and study them. Or plan to lose all your money.

Anyway…

The market is dog shit right now and I just bought a small cap, high growth stock with a PE of 430. Why? Glad you asked…

1) I have a personal strategy/style that I understand well and it doesn’t involve PE analysis (but I did read that catchy titles gets you more reads… suckers!)

2) I study market history and this stock has characteristics of many strong performing stocks from the past

3) I put a huge emphasis on risk management (as should you)

4) I know that I know nothing about the future of the markets. It could jump 10% tomorrow or drop 40%. You don’t know either.

5) I know that to make money one must take risks

So let’s look at the $QLYS purchase a little closer.

My strategy is to find huge winners and ride those trends (I’m still trying to figure out how to do it..). For those that share a similar style you know by now that relative strength (RS) in a specific stock during market pullbacks is often correlated with positive future performance. This post by @ivanhoff from the summer of ’12 introduced me to this concept and I have tried to learn from it since. However, there really haven’t been many serious pullbacks since then, until now. I’m not saying the market is in shambles right now. These pullbacks are historically normal. But many, many individual names are broken so that is enough for me to raise cash and search for major RS. $QLYS has it. Charts explain it best.

QQQ year to date. Doesn’t take a market wizard to know which way things have been going recently.

QLYS compared to QQQ – year to date. Up 30% compared to down about 1%

QLYS compared to QQQ since the beginning of September. This one tells the real story. Since the market has started to really struggle this stock has performed very well.

So let’s move to the next points – risk management and the overall market. The stock looks good, but why buy it today?

I put a lot of emphasis on the strategy of letting specific stocks guide me in and out of the market. I know I just used the QQQ as a reason to get into this stock, but in reality I would buy this stock in any overall market situation. It would just be easier to pull the trigger if we were in a bull market. I know that the stock matches up with a setup I am familiar with and like so why make it more complicated and get scared by the overall market? In an emotionless world, this decision would be exactly the same in a raging bull market or a massive selloff. The market could rip tomorrow and move up for years. Or it could sell off and start another great depression. Nobody knows. So don’t waste too much worrying about it. Now to the entry, just like any entry, in any market.

I use a simple spreadsheet:

Tells you everything you need to know. Buy price was the price right around 2:30pm today (I like to make buy/sell decisions only in the last 1/2 hour of the day). Stop price is determined off a shorter term chart (stop is where I think the current uptrend is invalidated – depends on personal timeframe):

The main thing I can play with is the amount risked. I usually risk 0.5 – 1% and it’s really just a feel thing. Right now I am more comfortable with less risk so I am at the low end of my risk tolerance. If this trade starts off well I can always add to it.

So I pulled the trigger. But I always have a plan. I know that 4/5 stocks move with the general market. I know that the market is moving down. I am prepared to lose 0.50% of my portfolio. I almost expect to. But I also know that if things stabilize or turn up I have a great entry in a stock that has showed zero distribution while many stocks have been slaughtered. I’ll take that risk. I’ll also take that delicious segue to my final point.

You have to take risk if you want to make real money. If you don’t like taking risks the market is not the place for you. But you must understand risk and, more importantly, be able to define it and stick to your loss cutting rules. I am prepared to take a 0.50% loss on my portfolio. Is there a possibility that QLYS could gap down 50% tomorrow? Yes. That would suck. But there’s also a chance it triples in the next 2 years and I want to be a part of that.